PRIVATE COMPANY TO LLP
Both private companies and LLPs have their own set of benefits and disadvantages. Many business opt for conversion of private limited company to LLP for many reasons. It helps businesses consolidate assets, change the ownership and shareholder pattern, etc. SunShine Corporate Solutions has been helping businesses with conversion of private limited company with our expert legal and corporate resources.
Here are a few key reasons why a business goes through conversion of private limited company to LLP:
• Tax benefits: The most important reason for conversion of a company into an LLP is on the tax front. Currently, the Income-tax Act, 1961, provides for payment of Minimum Alternate Tax (MAT) as also for payment of dividend distribution tax (DDT) by companies. An LLP, which is not a company, is not be liable to pay MAT or DDT.
• Shareholders: The number of shareholders for private limited company is limited to 200. However, an LLP has no such limits on the number of partners (equivalent of shareholders) that can be part of the business.
• Compliance: A public limited company or a private limited company has to adhere to a number of compliances including meetings and statutory records. However, an LLP is not required to maintain these records. Therefore it is a more cost effective way of doing business.
• Automatic transfer: After conversion of private limited company to LLP, all the assets of the previous entity, as they existed before conversion, are transferred to the LLP automatically. There is no need for additional legal paperwork.
• Stamp duty: Since the owners of the private limited company become partners at the LLP, there is no transfer of ownership. Therefore, there is no stamp duty on the movable and immovable properties during LLP registration.
• Capital gains tax: No Capital Gains tax shall be charged on transfer of property from Company to LLP.
• Brand value maintained: Since all trademarks and brands are transferred automatically during conversion of private limited company, the brand value of the new LLP remains the same, and can be continued.
• Losses and unabsorbed depreciation carried forward: When a private limited company is converted to an LLP, all the losses and unabsorbed depreciation are retained by the LLP. Therefore, these can be carried forward for a period of eight years by the LLP.
Minimum requirements for conversion of private limited company to LLP:
Here are the minimum requirements for LLP registration during conversion of private limited company:
• On Conversion, all the members/shareholders of the company shall become partners of the LLP in the same proportion in which their capital accounts stood in the books of the company on the date of the conversion.
• The private company should have filed all its income tax returns and annual returns to Registrar of Companies and should have maintained an up to date record of the same.
• Private Limited Company to obtain consent of all the unsecured creditors for the proposed conversion
• Partners can only receive consideration by way of allotment of shares in the new LLP.
• There should be a minimum of 2 designated partners in the new LLP.
• At least one of the designated partners at the LLP should be an Indian resident.
• If body corporate is a partner, it has to nominate a natural person as its nominee.
• The partner and designated partner can be the same person
• Each and every one of the designated partners should have a Designated Partner/Director Identification Number (DIN)
• At least One designated partner should have a Digital Signature Certificate (DSC)
Sunshine Corporate Solutions has been providing customized solutions to all kinds of business including public limited companies and private limited companies for many years. We have deep experience in the legal and financial departments, when it comes to corporate businesses. Our company incorporation and other corporate services can benefit public and private companies of all sizes. We ensure that all the requirements for conversion to LLP will be efficiently met. By outsourcing the process to Sun Shine Corporate Solutions, you get the benefits of a speedy conversion. In order to find a solution that is specifically tailored for your business needs, please contact us.